The Demand Solutions Blog

Last week, we talked about how unit amenity pricing is the most common place to uncover hidden NOI in multifamily rental operations, and we covered the various reasons why amenity opportunities present themselves.

Unit amenities are a simple concept, at least in theory.  However, experience shows that the practice is a lot more challenging. So, let’s explore a few of the reasons that finding missing amenities is more difficult in practice than in theory.

1. It takes a concerted effort. Finding missing amenities is not like finding trash along the tour path. Associates must make must review and understand the configuration of the PMS and purposefully evaluate that against what they see in the property. It takes a combination of looking at site maps, Google maps and physically visiting buildings and units. It’s rare that one just stumbles upon the obvious.

I toyed with a “New year’s resolution” post, to welcome the new year, but as 2020 gets underway there’s something that we at D2 are really excited about. As multifamily housing operations specialists, we’re constantly looking for ways to eke out just a little more net operating income (NOI) for our clients. Can we get a few dollars more rent or reduce expenses by a few bucks? It’s a never-ending challenge, and anyone who’s been doing this for a few years knows how hard it is to keep finding those dollars.

But rather than the few bucks in expense savings, right now we’re preoccupied with the few hundred dollars a month that - for almost all multifamily communities - are just sitting there waiting to be plucked. Sounds too good to be true, doesn’t it? There simply can’t be a simple way to generate better NOI or we would have already done it, right?

After more than 20 years in the industry working with operators who manage more than 1.3 million units, we can tell you that if you are running multifamily properties you are probably sitting on at least a couple of hundred dollars a month (and maybe thousands) in incremental revenue.

The culprit? Drum roll, please…incomplete and/or inaccurate unit amenity configurations!

I was recently moderating a panel on short-term rentals (STRs) at the Indiana Apartment Association’s Multifamily Industry Summit, and a question came from the audience about the implications of Government Sponsored Enterprise (GSE) policies regarding STRs on the ability of owners to have as liquid a funding and sale market as possible.

This is a question that occasionally comes up in other STR panels and discussions though surprisingly not as often as one might expect. When I first heard this question in 2017, I did some research in early 2018 on this subject; and somewhat coincidentally, I had just updated this research following conversations leading up to NMHC’s OpTech.

First, let me say that our work and experience is completely on the operating side. Neither my team nor I have extensive experience in the financing side of the business. So everything here is a) the result of research into an area a bit out of our sweet spot and b) meant to start a conversation should anyone out there have information more contemporary and/or more accurate.

As we head into the holidays, I hope everyone has some time planned for family, fun and just winding down a bit. Taking a lesson from Stephen Covey’s “7 Habits,” we at D2 Demand really believe in life-work balance to “sharpen the saw.” This balance was on our minds this week as the growing D2 team followed its end-of-year meeting with our now-annual holiday party with our friends at Linnell-Taylor and Après Creative, this year held at Unser Kart Racing. 

Amid the holiday festivities, it’s easy to forget some of the pitfalls of year-end in multifamily. One of the most obvious is the traditionally-sluggish demand for apartments that tends to accompany buoyant demand for socks, items from the Williams-Sonoma catalog and the like.  

November and December always carry the risk of panic pricing reactions and concessions, and more broadly of the self-fulfilling prophecy that “we don’t sign leases at this time of year.” With marketing budgets having dried up months ago (like *enter the name of the child’s gift you can’t find anywhere*) year-end can be a leasing funk.

As we head into the winter months, it’s normal to think about slopes - especially if you live in Denver, as I do.  Denver is famous, amongst other things, for both skiing and multifamily leadership, and the “slopes” that we find ourselves discussing with multifamily leaders at this time of year are the profiles that describe a property’s lease expirations.

Lease expiration management (LEM) is particularly timely now as we lease December/January move-ins, soon moving on to February (which many are already sending renewal offers for) and then March. Now is the time where we get to move expirations out of undesirable expiration months into more desirable months. 

Miss your targets in the next few months, and you’ll have to wait another year to try to fix that pain. It should be simple enough, right? We know there’s seasonality, so we know what good and bad months for expirations are. All we need to do is stop signing leases with bad expirations and only sign leases with good expirations. As my good friend and former colleague now at RealPage, Rich Hughes would say, “Done and done,” right?

There's been a lot of talk of downturns lately in Pricing and Revenue Management (PRM) circles. It was a major theme of the recent NAA Maximize conference and was also covered at NMHC OPTECH last week. While no one knows when the downturn is coming, everyone seems to agree that it's a good idea to plan for it. While occupancy and rent growth are still strong, the sheer length of the recovery since the last recession has everyone wondering how much longer this bull run can last.

I just got back from attending the inaugural FLEX conference. More than 200 industry professionals spent a day and a half focused on the issues of short-term rentals (STRs) in this “first of its kind” event. Here are a few thoughts and recollections while still fresh in my mind:

1. Content was king! Kudos to Stephen Lefkovits and Dennis Cogbill for curating an excellent set of content. The content covered all angles, discussing pros and cons, finance questions, operational and service issues, regulatory challenges and more. Most importantly, presenters shared real-world scenarios, actual results based on data and generally gave the audience information they could take back to their offices and use.

2. The Lines are Blurring. If I were to sum up the conference lessons learned in one word, it would be “blurring.” There’s a blurring of lines. Housing is blurring with hospitality; vacation stays are merging with business travel, and vendors are combining to offer a range of overlapping services, etc. On the one hand, it’s quite confusing as it’s increasingly hard to label anything or keep our processes in neat metaphorical cubbyholes. On the other hand, it’s incredibly exciting, posing many opportunities for those who can embrace the increased uncertainty/risk to expand and optimize the use of space.

In recent weeks we've been both thinking and writing about two things: pricing and revenue management (PRM) skills and the possible impact of an economic downturn.  A recent conversation reminded me of another related topic: the metrics we use to measure performance.

Given the importance of pricing and business analytics to our success, the metrics we choose to measure performance matter.  Yet while the industry has made great strides in employing ever-more sophisticated software, many processes and rules of thumb remain that have not caught up to where the technology is.

There is perhaps no better example than the metric "gross potential rent" (GPR). This metric is so ubiquitous that many property management systems (PMSs) embed it in their data model and standard reports.

 
“What about the liability?”

“What about noise complaints from neighbors?”

“What about the extra costs involved?”

“It will totally change the character of our community, and we don’t want that!”

To anyone who’s been involved in talking about short-term rentals (STRs), the above looks very familiar, right? They’re the most common concerns about the risks (and hassles) involved with allowing residents to sublease their apartments on short-term rental platforms.

Except that’s not where I first heard these concerns. Back in the late 1990s, hardly any apartment communities allowed pets, particularly dogs and cats, in their apartments. When I asked why not, I usually heard the same four objections.

Yet a few intrepid pioneers, sensing the growing importance of pets as part of their prospective residents’ lives, took a risk and started allowing pets.

I remember visiting one of those in the early ‘00s, Archstone South Market, at the edge of the financial district in San Francisco. I was touring and noticed there seemed to be a lot of dogs. So I asked the community manager whether that was true or it was just me thinking it was.

Do your community and regional property managers have such a great relationship with their pricing and revenue managers that there is no sense of tension at all? They never escalate an issue because they always agree? If you answered “yes” to either or both questions, then you are likely leaving money on the table.

At first blush, that probably sounds provocative at best and just flat out wrong at worst. Admittedly, in most situations, leaders strive to remove tension in the relationships that exist between co-workers who collaborate to create business success. However, pricing and revenue management (PRM) is different.

Lately, we’ve been writing a lot about PRM capabilities as well as pricing strategy, but even if both are perfect, the nature of inter-departmental relations still has a heavy influence on performance.  In my thirty years of experience in PRM (20 of that in multi-family housing PRM), I have found that a lack of tension almost always indicates one of two situations. Both are bad for maximizing revenue: